GATT

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The GATT system: rounds
Paul Krugman
The Governments of the Commonwealth of 
Australia, the Kingdom of Belgium, the United 
States of Brazil, Burma, Canada, Ceylon, the 
Republic of Chile, the Republic of China, the 
Republic of Cuba, the Czechoslovak Republic, 
the French Republic, India, Lebanon, the 
Grand-Duchy of Luxemburg, the Kingdom of 
the Netherlands, New Zealand, the Kingdom of 
Norway, Pakistan, Southern Rhodesia, Syria, 
the Union of South Africa, the United Kingdom 
of Great Britain and Northern Ireland, and the 
United States of America:
The original “contracting parties”:
GATT principles:
Non-discrimination:
Most Favored Nation (MFN)
National treatment
Negotiation: Rounds
Irreversibility: Binding
Also: prohibition on quantitative restrictions
No prohibitions or restrictions other than 
duties, taxes or other charges, whether made 
effective through quotas, import or export 
licences or other measures, shall be instituted 
or maintained by any contracting party on the 
importation of any product of the territory of 
any other contracting party or on the 
exportation or sale for export of any product 
destined for the territory of any other 
contracting party.
Specific allowance for import-substituting industrialization
1. The contracting parties recognize that the attainment of the objectives of this 
Agreement will be facilitated by the progressive development of their economies, 
particularly of those contracting parties the economies of which can only support 
low standards of living* and are in the early stages of development.*
2. The contracting parties recognize further that it may be necessary for those 
contracting parties, in order to implement programmes and policies of economic 
development designed to raise the general standard of living of their people, to take 
protective or other measures affecting imports, and that such measures are justified 
in so far as they facilitate the attainment of the objectives of this Agreement.
Consequently, a contracting party, the economy of which can only 
support low standards of living* and is in the early stages of 
development,* shall be free to deviate temporarily from the provisions 
of the other Articles of this Agreement, as provided in Sections A, B 
and C of this Article.
Dumping and countervailing duties
In order to offset or prevent dumping, a 
contracting party may levy on any dumped 
product an anti-dumping duty not greater in 
amount than the margin of dumping in respect 
of such product. For the purposes of this 
Article, the margin of dumping is the price 
difference determined in accordance with the 
provisions of paragraph 1.*
Escape clause / safeguards
If, as a result of unforeseen developments and of the effect of the obligations 
incurred by a contracting party under this Agreement, including tariff 
concessions, any product is being imported into the territory of that 
contracting party in such increased quantities and under such conditions as 
to cause or threaten serious injury to domestic producers in that territory of 
like or directly competitive products, the contracting party shall be free, in 
respect of such product, and to the extent and for such time as may be 
necessary to prevent or remedy such injury, to suspend the obligation in 
whole or in part or to withdraw or modify the concession.
Article XXIV: Free trade areas and customs unions
4. The contracting parties recognize the desirability of increasing freedom 
of trade by the development, through voluntary agreements, of closer 
integration between the economies of the countries parties to such 
agreements. They also recognize that the purpose of a customs union or of a 
free-trade area should be to facilitate trade between the constituent 
territories and not to raise barriers to the trade of other contracting parties 
with such territories.
5. Accordingly, the provisions of this Agreement shall not prevent, as 
between the territories of contracting parties, the formation of a customs 
union or of a free-trade area or the adoption of an interim agreement 
necessary for the formation of a customs union or of a free-trade 
area; Provided that:
But why?
GATT-think (as originally proposed)
1. Exports good
2. Imports bad
3. More trade good
I.e., enlightened mercantilism
Imports
Exports Foreign offer curve
Slope = price
Slope = true marginal cost
The optimal tariff argument
Imports
Exports Foreign offer curve
But if both countries do it …
Home offer
curve
Head for an equilibrium
with too little trade
Political economy models argue that this is
what tips the balance toward making trade 
agreements desirable …
Is this right? Are trade negotiators doing this
even though they don’t think this way?